"The possibility of there being a bubble isn't going to keep her from doing more if she thinks that's appropriate. She sees no problem in doing more asset purchases or even expanding them."
- Brian Jacobsen, chief portfolio strategist at Wells Fargo Advantage Funds
The next Fed Chairman Janet Yellen already pledged to stick to plans to start withdrawing the stimulus programme in the coming months if the economy perks up. Moreover, she pointed out that stimulus has made a meaningful contribution to the growth. Policymakers all over the world have been cutting interest rates and injecting more money into financial system. But what if record-low interest rates policies produce disappointing results in 2014, as they had little effect during the last four years? In case Britain and the United States expand below 3% next year, and the Eurozone posts a growth around 1%, policymakers would have to admit that monetary and fiscal experiments have failed. Moreover, it would mean that all post-Lehman stimulus policies were not effective, but even counter-productive. The main goal of any stimulus programme is to boost domestic demand; however, funds have not been transferred directly to consumers and were stuck in banks. The possible way to solve this problem is to combine both monetary and fiscal policies into a new form of stimulus that would be supposed to give money directly to consumers, avoiding trickle-down effects from financial markets. Hence, the Fed could have send out a check of $270 each month directly to each of 315 million Americans, rather than transferring $85 billion per month to bond investors. The easy-money policy is an equivalent to a tax cut, hence, fiscal reforms are also one of the possible options. No wonder the next year would be decisive for central bankers all over the world.
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